Should you retire at 55/57 or keep working ? Here’s my arguments for and against.
For:
- Longevity risk – poor health decline and you don’t get to enjoy retirement
- Change in legislation – we’ve seen how ISA has been changed recently Cash ISA limit, S&S ISA cash restrictions with charge.
- Increase in state pension age – if you rely on state pension you may find yourself waiting too long and get too old to enjoy life
- Increase in minimum pension age – why does the government do this ? This is your own contribution pension, money you and your employer have put in privately.
- Tax has been getting worse over the last years – you don’t want to end up in a higher tax bracket or pay more tax later:
- We’ve seen capital gains allowance reduce from £12,300 to £3,000 [1]
- Dividends Tax rate increase from 7.5% to 10.75% [2]
- Dividends allowance reduced from £5,000 to £500 [3]
- Income Tax Thresholds and Personal Allowance frozen until 2031 [4]
- Another big one is Inheritance tax. Previously, if you put money into your pensions, the latter was excluded from your estate meaning that when you pass away that is excluded from IHT. Not anymore – from April 2027 pensions now form part of your estate and will be taxable. [5] I personally find that difficult to accept as people have been encouraged to save into pension for so long, only to now be penalised for doing so.
- The IHT thresholds the nil rate band of 325k has not changed since 2009 and the residence nil rate band of 175k residence has not changed since 2020 despite inflation. [6]
- These point to a bigger issue – Trust. ISAs and Pensions are cornerstones for retirement and these changes are a slap in the face. Can you trust the government will not change the rules when they feel like it, leaving you in the dust? Clearly not
Against:
- Compounding is one of the most powerful forces in your personal finance journey. Just working a few more years can make the difference between retirement success and failure. So this is a big one. What you don’t want to do is wave your fist in the air and say: “That’s it, I’m gonna retire now!”. You do need to run the numbers first and see whether you have enough of a safety margin before you decide to retire. And that was actually my motiviation to build the Questula platform – answer questions about personal finance with evidence, facts and numbers. Not guesses.
- What about personal/emotional reasons – working gives you a sense of purpose, prestige/status…etc. I don’t think I’m personally qualified to assess this, as this is a personal choice but a perfectly valid reason to keep working.
References
[1] HM Treasury, Budget 2016 – Overview of tax legislation and rates (£12,300); HMRC, Capital Gains Tax rates and allowances (£3,000). 2016 rates Current CGT allowance
[2] HM Treasury, Tax and tax credit rates and thresholds for 2016-17 (7.5%); HMRC, Income Tax rates and allowances (10.75% for 2026/27). 2016/17 dividend rate Current dividend rates
[3] HM Treasury, Budget 2016 (£5,000 Dividend Allowance); HM Treasury, Budget 2025 – rates and allowances (£500 for 2026/27). 2016 Dividend Allowance Current Dividend Allowance
[4] HMRC, Maintaining the Personal Allowance and basic rate limit until 5 April 2031. Income Tax thresholds to 2031
[5] HMRC, Inheritance Tax on pensions: technical note — most unused pension funds and pension death benefits brought within the estate from 6 April 2027. IHT on pensions from April 2027
[6] HMRC, Inheritance Tax thresholds — £325,000 nil-rate band since 2009/10 and £175,000 residence nil-rate band since 2020/21. IHT thresholds